Here's What You Need to Know?

Whether it's called a Foreclosure (most commonly used), a Bank Owned Property (has already gone through the foreclosure process and is now owned by the bank) or an REO (real estate owned - bank terminology meaning an asset on a banks balance sheet), the terms are often used interchangeably.

A foreclosure can be a great purchase. It can be a way for someone to get into a home that they might not have been able to get into price-wise with the square footage, number of rooms and so on that they might not have otherwise been able to find. If you have decided to purchase a foreclosure - Do Your Homework. If you are prepared for the pitfalls that a foreclosure can have, the better chance you will have of making a great purchase.

All that Glitters is not Gold! Now that you have found a foreclosure in your price range with all of the features and amenities that you want, will it be right for you? While there are exceptions to every scenario, here are some common misconceptions.

A foreclosure will show like a model home.

Be prepared for a mess. The people leaving the home behind did not show a lot of pride of ownership. There can be repair conditions - from just needing a little TLC to major damage.

The bank goes in and gets the property "move in ready.

Rarely. The banks usually don't have the time or want to spend the money for this kind of undertaking. The property is sold "as is."

You can negotiate the price with the bank.

Not as much as people think. Banks are savvy about pricing properties correctly. Many homeowners price their property based on the amount of money that they are looking to get out of the sale. Banks price properties to sell. They know by doing this that invariably they will get an offer at least close to what they are asking in a reasonable period of time. Low ball offers generally may not even get a response. (See my "Negotiating Real Estate" blog).

I don't want to pay for a home inspection.

It may be the best investment you'll ever make. A home inspection can range anywhere between $250 and $500 depending on the size of the home and the amenites. If you are extremely knowledgeable regarding home inspection, then you may be the exception. This is not common. Use a professional. If you don't know of any home inspection services, ask your REALTOR® to recommend several. After interviewing them, hire the service that you have the most confidence in.

Once I make an offer, I can't change my mind.

You can. Once you submit the offer you will be given a time-frame for "due diligence." If during that time, you discover inspection or lending issues (for example) that come into being and cannot be resolved, then under most circumstances the offer can be withdrawn.

I'll talk to a lender after I find the home that I want.

Not advisable. If you are planning on financing the home, you'll need a pre-approval from not only your preferred lender but most likely also with the bank that owns the property. If you make an offer on the property, you will need to submit this information with your offer. If you're paying cash you will need to submit a VOF (verification of funds). The bank is not going to take the home off the market without reasonable assurances that the deal has a strong chance of closing. Don't take a chance on losing the home because someone else was ready and you were not.

I'm looking for something in the 200k to 250k price range.

Many buyers will just come up with a figure of what they are willing to pay for a home with no justification. They don't know what interest rate or loan amount that they actually qualify for, what loan program will best suit their needs, what will their monthly payment be and so on. A lender will provide this information at no charge. Find a lender that you are comfortable with. If you don't know of one, ask your REALTOR® to help you with the process.

I don't know if I'm really getting a good deal.

Your REALTOR® can help you with this. Ask for what comparables in the area have recently sold for, the last purchase price, what other comparables are currently selling for and the history of the property. Without this information, it's just a guess.

A foreclosure can be an incredible value. Know what to expect. Do the homework (with the help your REALTOR®) and get ready to move into the home that you have always wanted at a price that works for you.